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Welcome Building Business Acumen. Important Questions. How much do you know about Epsilon and ADS Corporation’s Key Success Measures ? (or Key Performance Indicators (KPIs) ) Let’s find out!. Pop Quiz. For fiscal year 2011 : Epsilon ADS.

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slide2

Important Questions

How much do you know about

Epsilon and ADS Corporation’s

Key Success Measures?

(or Key Performance Indicators (KPIs))

Let’s find out!

slide3

Pop Quiz

For fiscal year 2011: EpsilonADS

1 - How much Cash was on hand?$______$______

2 - How much Cash was generated by

Operating Activities? $______ $______

3 - What was our Total Revenues? $______$______

4 - What was our Net Income?$______$______

5- What was our EBITDA Margin? ______%______%

6 - What was our Net Margin?______%______%

7 – What was our Return on Assets? ______%______%

8 - How much did Total Revenue change YOY? ______%_______%

9 - How much did EBITDA change YOY? ______%_______%

10 - How much did Net Income change YOY? ______%_______%

N/A

N/A

N/A

N/A

N/A

N/A

35

slide4

Learning Objectives

  • Understand the 10 key performance measures that are important to Epsilon, ADS and the Executive Team.
  • List and describethe five business drivers all successful businesses must focus on.
  • Teachspecific components of ADS financial statements.
  • Betterarticulatecompany performance & strategy.
  • Createa personal action plan that can positively impact personal performance and company results.
slide5

Acumen Means?

…the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business.

3

slide6

Business can be tough!

  • Only 5-10% of business start-ups survive past 5 years.
  • 16% of CEOs lose their job every year.

Booz Allen Hamilton 5th annual Study

  • 70% of merger and acquisition activity do not live
  • up to expectation. Wall Street Journal 2007
  • Why do businesses fail?

6

slide7

Business Acumen:

4

Every business must focus on fivebusinessdrivers.

  • If they do, they will be successful.
  • If they don’t, they’ll fail.

Let’s Start a Business!

slide8

Cash & Cash Flow

Sources of Cash

  • Earn it
    • cash from Operation
  • Sell Assets
    • Cash from Investing
  • Borrow it
    • Cash from Financing

Pro: No Cost -Con: Time

Pro: Immediate -Con: Reduces Assets

Pro: Immediate -Con: Cost (Interest)

Can a company have too much Cash?

9

slide9

Cash

Can a company have too much Cash?

More attractive in a buy-out.

Low return.

Shareholders don’t like it.

May make poor decisions.

9

how much cash should you have
How much cash should you have?

Companies ought to keep just enough cash to cover their interest, expenses and capital expenditures; plus they should hold a little bit more in case of emergencies.

Investopedia

slide11

Definition: Cash

Definition

What is required to grow and maintain the business.

Measures

Cash – the bills and coins in the register, petty cash, and cash in the bank. Also includes cash equivalents, like CD’s and other highly liquid investments, that easily convert into cash within 90 days.

Cash

Cash Flow – The cash generation from core business activities calculated from the difference between the cash that flows into and out of the business in a given period of time (month, quarter, annual)

8

slide12

Cash

ADS

(In Millions)

9

slide13

Cash

Benchmarks

(In Millions)

9

slide14

Definition: Profit

Definition

What is left over after you have subtracted expenses. Can be expressed in dollars ($) or percent (%).

Measures

EBITDA/EBITDA Margin– Reflects earnings before interest and taxes.

Profit

Net Profit / Net Profit Margin – Profit after all expenses have been subtracted from sales.

10

two ways to impact profit
Two ways to impact PROFIT

Total Revenues(Sales) $100 100%

- Cost of Operations $ 57

- Provisions For Loan loss $ 10

- General & Admin. (G&A) $ 3

=EBITDA $ 30 30%

-Depreciation & Amortization $ 5

= Operating Income$ 25 23%

-Interest & Other Expense $ 9

-Taxes $ 6

= Income From Continuing Operations $ 10 10%

-Losses from discontinued operations $ --

= Net Income $ 10 10%

driving profit high and low profit margins
Driving ProfitHigh and Low Profit Margins

S&P Average TTM: 13%

Who has much higher profit margins?

Coca Cola 33%

Microsoft30%

Google 29%

Apple 21%

Why the high margins?

driving profit high and low profit margins1
Driving ProfitHigh and Low Profit Margins

S&P Average TTM: 13%

Who has lower profit margins?

ExxonMobil8%

Wal-Mart 3.8%

Costco 1.7%

Why the low margins?

calculating adjusted ebitda
Calculating Adjusted EBITDA

2011

EBITDA $ 965.8

+Stock Compensation Expense $ 43.5

+Loss on Sale of Assets $ --

+Merger and Other Costs $ --

= Adjusted EBITDA$ 1009.3

slide19

Epsilon 613,374 514,272

Profit

ADS

(In Millions)

11

slide20

Epsilon 613,374 514,272

Profit

Epsilon

(In Millions)

11

slide21

Profit

Benchmarks

(In Millions)

S&P 500 Averages: Net Margin = 11% 2010 13% 2011

11

assets read from guide book p 12
Assets (Read from guide book p. 12)

i.e. cash, inventory and ratings

Asset Utilization

Asset Strength

&

Balancing…

slide23

Definition: Assets

Definition

Assets

What we have and how well we use what we have.

Measures

Return on Assets (ROA)— percent value of Net Income to Total Assets

12

slide24

Assets

ADS

(In Millions)

ROA = Net Income = $315 = 3.51%

Total Assets $8,980

13

slide25

Assets

Benchmarks

(In Millions)

13

slide26

Definition: Growth

Definition

The ability to increase year over year, quarter over quarter, and/or month over month.

“In today’s business world, no growth means lagging behind in a world that grows every day…”

“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”

Growth

Measures

Revenue Growth

EBITDA Growth

Net Income Growth

14

slide27

Business in Rapid Decline…

  • Best & brightest leave first.
  • Productivity goes down.
  • Morale goes down.
  • Costs are cut, which limits ability to grow,
  • company becomes less profitable.
  • Studies Show:
  • It usually takes 4 or 5 years for the company to recover.

15

slide28

Business in Rapid Growth…

  • Attracts/Retains the best & brightest!
  • Productivity goes up = more profit = more
  • cash = more ability to grow!
  • Morale is high.
  • You have the ability to grow in your career!
  • Growth gets more time & attention than any of the 5 elements in a public company.

15

slide29

Growth

ADS

(In Millions)

15

slide30

Growth

Epsilon

(In Millions)

15

slide31

Growth

Benchmarks

(In Millions)

15

slide34

Definition: People

Definition

-The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business..

-Employees

People

16

goal for 2012
Goal for 2012

EPSILON

“the focus is very simple. It’s to continue to drive double-digit growth. And second, and this is also critical, is we want to make sure that when we’re dealing with the Global 1000 that they view Epsilon not as just a provider of digital agency or analytics or distribution or data, but they view Epsilon as the place to go to handle their entire needs when it comes to this targeted marketing.

And so, much time and effort will be spend on integrating all the different parts of Epsilon in the sales team to make sure that we’re selling no longer a $3 million or $5 million contract, but a $40 million or $50 million contract and that’s the ultimate goal, very similar to the other two parts of the business where it’s all or nothing with our clients.”

2011 Year End Press Release

industry leadership
Industry Leadership

We’ve Invested Over $1.3 Billion To Be The Comprehensive Provider

Epsilon acquires

Aspen Marketing Services

ICOM integrated into Epsilon

Epsilon acquired

Bigfoot Interactive

Epsilon acquired CPC Associates

Epsilon acquired by

Alliance Data

1969 Oct 2004 Sept 2005 Nov 2005 Apr 2006 Sept 2006 Feb 2007 Jan 2009 Jul 2010 Jun 2011

Epsilon acquired the Equifax Direct Marketing Services Division

Epsilon acquired DoubleClick Email Solutions

Frequency Marketing, Inc. integrated into Epsilon

Epsilon acquired

Abacus

Epsilon founded

slide37

Epsilon Agency Overview

Marketing Database

Design • Development • Hosting

Digital & Interactive

Email Service Provider

Web design & hosting

Real-time decision support

Loyalty Management

Technology platforms & Program

Strategy Services

Data Processing Services

CDI/PDI

Data Hygiene

NCOA, PCOA, M/P

Demographics

115 million HH, 225 million individuals

with 31 different sources.

Financials

HH Income, Credit Card Capacity,

Financials Stress Indicators, Home

Value, Net Worth

Lifestyles

Self-reported lifestyles & interests

from 40 million consumers

Market Activity

Online and Offline purchase

Information, with details RFM data

For 60 millions+ HH

Triggers

Behavioral data w/life event and life stage triggers, + purchase propensity

Strategic Consulting & Advanced Analytics

Program Strategies, Investment Justification, Customer Segmentation, ROI Analytics, Predictive Modeling & Marketing Mix Modeling

Digital

Websites, Email & Mobile Campaigns, Social & Word-of-mouth Programs

Direct Response

Concept to Mailbox Campaigns, Web-to-print Technology & Database Management

Consumer Promotions & Events

Loyalty & Continuity Programs, Partnerships & Sponsorships, In-Store Marketing, Mobile Tours, Guerilla Marketing & Sampling Events

Hispanic Marketing

Consumer Promotions, Direct, Digital & Experiential Marketing

37

business drivers page 18
Business Drivers (Page 18)

Cash-On hand -Generation

Growth -Top Line -Bottom Line

Profit -Revenue -Expenses

People

-Customers

-Employees

Assets -Strength -Utilization

epsilon financial statements
Epsilon Financial Statements
  • What is the basicequationfor each statement?
  • What is the purposeof the statement?
  • What are the keynumbersand how are they trending?
  • How can you impact each statement?
  • The Annually Reported Financial Statements
            • Statement of Income (P&L)
            • Balance Sheet
            • Statement of Cash Flows

21

slide40

Indicates:

Profitability

Equation:

Revenues- Expenses= Income

P&L

  • SG&A:
  • Salaries
  • Sales commissions
  • Benefits/Severance
  • Rental Expense
  • Bad debt charges
  • Merger integration costs
  • Professional services:
  • Attorney fees, Accounting

= Top Line

(Revenue = Sales)

(COGS)

(G&A)

EBITDA Margin

Total Revenue: 3,173,287

EBITDA:

EBIT 812,680

+70,427

+82,726

= 965,833

÷ 3,173,287

= 30.44%

EBITDA margin =30.44%

= EBIT

Net profit margin = 9.94%

Net Profit Margin

Net Income: 315,286

Total Rev. ÷3,173,287

= 9.94%

S&P 500 Ave. = 13%

= Bottom Line

= Net income /

Diluted # of shares

slide41

Increase revenue by 100K

Statement of Income (P&L)

100K

57K

57K

43K

43K

17K

26K

slide42

Statement of Income (P&L)

Lower costs by 100K

100K

100K

100K

100K

38K

62K

slide43

Which is better?

Raising Revenues $100M = $26

-or-

Cutting Costs by $100M = $62

What are the implications of each action?

slide44

Indicates:

Financial (asset) Strength

Equation:

Assets = Liabilities + Equity

Snapshot in time

Most Liquid

Becomes Cash < 1 year

Least Liquid

Current Ratio = 1.71

Due First

Due in < 1 year

Balance

?

Due Last

slide45

Equation:

Cash from operations + Cash from investing + Cash from financing = Net Change in Cash

Purpose:

Cash Management

?

?

Net Change in Cash 

Started Year 

Ended Year 

slide46

216.2

812.7 + 153.1 = 965.8

3,173.3

30.43

slide47

1

216.2

2

1,1011.4

3

3,173.3

4

315.3

812.7 + 153.1 = 965.8

3,173.3

5

30.43

3,173.3

315.3

6

9.94

7

8,980.2

315.3

3.51

8

3,173.3

2,791.4

13.68

812.7+153.1=965.8

629.2 + 143.2 = 772.4

9

25.04

10

315.3

62.78

193.7

slide48

Epsilon Corporation’

Key Success Measures

1 ½

  • SCORING:
  • Right answer = 1 point
  • Somewhat close = ½ point (within: $2B, $2, 2%)
  • Missed it by a ways = 0 point

0

35

slide49

Changing Behavior

*Based on a 1993 Brigham Young University Study

When a Person Says …

Chances of the idea being incorporated into their life is...

“That’s a good idea”… 10%

“I’ll do it!” and commits... 25%

Says when they’ll do it… 40%

Plans how to do it… 50%

Commits to another… 60%

Sets a future specific appointment with the

person they committed to...

95%

Good Management Technique!

slide50

Where to Find Information

(page 55)

* nasdaq.com * finance.google.com

* reuters.com * hoovers.com

* yahoo.com * smartmoney.com

Glossary: page 58

one final thought people will work hard for a paycheck harder for a person and hardest for a reason
One final thought…People will work hard for a paycheck,harder for a person,and hardest for a reason.